Penni Johnston-gill - Oct 09, 2015

US Portfolio Strategist Tony Dwyer questions whether we have seen the retest. Since we will only know after the fact, Tony finds two ways to answer the question directly. If the S&P 500 (SPX) continues to track 2011, the answer is "no" (Tony’s curren

US Portfolio Strategist Tony Dwyer questions whether we have seen the retest. Since we will only know after the fact, Tony finds two ways to answer the question directly. If the S&P 500 (SPX) continues to track 2011, the answer is "no" (Tony’s current view). The sign that Sept. 28 was a successful retest is if the recent gains hold over the coming week despite the very near-term overbought condition. Tony’s baseline framework is that the equity market is in the intermediate-term bottoming process, which could take a bit more time with another possible retest.

North American Portfolio Strategist Martin Roberge notes that equity markets have been on a tear this week with the S&P/TSX (up nearly 5%) on the back of a strong recovery in several commodities, notably oil. Other often-cited catalysts for this week’s rebound are: 1) a successful re-test of August lows, 2) short-covering, 3) increased takeover activities, and 4) perceptions that US economic weakness is pushing the Fed on hold. Martin’s believes this week could also mark the return of the EM pendulum which might have pushed too far on the bearish side this summer. As such, to the extent that a strong US$ and weak EM sentiment have impaired risk assets, the strong rally in EM currencies and EM debt lately suggest an encouraging shift in sentiment toward EM fundamentals. This shift is operating from abysmal economic conditions in EMs but the re-rating in commodity and resource stocks is also operating from deeply oversold and undervalued levels.

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